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Steve Ballmer was on hand in New York this morning to kick off the launch Office 365, Microsoft's latest answer to Google Apps.

The company had a bunch of beta-test customers and reseller partners on hand, and talking to them made a few things crystal clear:

This is about getting more money from small and mid-size businesses. When it comes to big enterprises, Office 365 is a tough pill to swallow for Microsoft-- the company earns less money up front and has ongoing service expenses, which don't apply when it sells software. But Office 365 has another big benefit for the company: it can help Microsoft capture more revenue from the hordes of small and mid-size businesses who use Office today, but who can't waste scarce IT resources setting up and running servers like Exchange (email) and SharePoint (collaboration and document sharing).

A good example was provided by Jared Walther of C&I Engineering, a small nuclear engineering firm with about 30 employees. When he joined the company, it was using Gmail for email, Citrix's GoToMeeting for meetings, and a hosted version of SharePoint provided by Rackspace. With Office 365, C+I gets all these functions in one place from one provider -- Microsoft.

Microsoft does have fans. Microsoft doesn't inspire slavish devotion among consumers like Apple, but some of its business software is actually -- there's no other way to say this -- loved. In particular, some customers who like Outlook for email, calendaring, and contact management and find Gmail to be way inferior. Both Walther from C+I and Fredo Lekkerkerker from Dutch trucking provider Truckland (which has about 300 employees) said that Gmail was a "no sale" because it didn't offer as many features as the combination of Outlook and Office 365. (These were hand-picked Microsoft customers, of course, but even some Google Apps customers have said the same thing -- Outlook's calendaring features are missed when they switch to Gmail.)

Lync is a big deal. Several customers and partners at the event said that Lync video chat is a big deal. One customer, Dallas Neurosurgical, is actually using Lync to send pictures from rural medical clinics back to their main hospital to help with diagnoses. The partner who sold them this solution, US Medical IT, tried to do the same thing with Microsoft's previous service, Live Meeting, but the resolution wasn't good enough. Other customers said that the lack of integration between LiveMeeting (online meetings) and Communications Server (one-to-one chat) was a big annoyance as well -- now it's all tied together with Lync.

Google drove this. Perhaps the most interesting comment came from Randal Southam of FifthCloud, a hosted services partner that worked with C&I. He said that he was really glad Google Apps existed because it drove Microsoft to get serious about providing business servers as services. He also said that Microsoft is now convinced it's got the right solution -- "A few years ago I saw fear in their eyes [when it came to Google Apps.] Now I don't because the product is so superior."

As far as the launch itself, there wasn't much news -- Microsoft announced Office 365 last October and has been in beta-testing ever since. Now it's available in 40 countries. Microsoft has also enlisted some new partners, including telecoms like Orange and Vodafone, to sell Office 365 alongside their own services.